#### Question

A man has a choice to invest in hundred-rupee shares of two firms at Rs 120 or at Rs 132. The first firm pays a dividend of 5% per annum and the second firm pays a dividend of 6% per annum. Find:

(i) which company is giving a better return.

(ii) if a man invests Rs 26,400 with each firm, how much will be the difference between the annual returns from the two firms.

#### Notes

1) 1 st firm

Market value of 1 share = Rs 120

Nominal value of 1 share = Rs 100

Dividend = 5%

Income on Rs 120 = 5% of Rs 100 = Rs 5

Income on Rs 1 = `5/120 = "Rs" 0.041`

2 nd firm

Market value of 1 share = Rs 132

Nominal value of 1 share = Rs 100

Dividend = 6%

Income on Rs 132 = 6% of Rs 100 = Rs 6

Income on Rs 1 = `6/132` = Rs 0.045

Then investment in second company is giving better return.

2) Income on investment of Rs 26,400 in each firm

`= 5/120 xx 26400 = "Rs" 1100`

Income on investment of Rs 26,400 in second firm

`= 6/132 xx 26400 = "Rs" 1200`

∴ Difference between both return = Rs 1200 - Rs 1100 = Rs 100